Highlights From King Wan Corporation’s Latest Full-Year Results

King Wan Corporation (SGX: 554) is a tiny conglomerate with a market capitalisation of S$111 million. It started life as a construction outfit but has since branched into other areas such as property, mobile lavatories services and the ownership and chartering of vessels The company announced its full-year earnings last Thursday, so let’s see how it fared. Operating results King Wan recorded revenue of S$95.4 million for the financial year ended 31 March 2014 (FY2014). That is a 44% improvement over the previous year. The huge jump in sales is mainly due to ”a significant increase in the…

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King Wan Corporation(SGX: 554) is a tiny conglomerate with a market capitalisation of S$111 million. It started life as a construction outfit but has since branched into other areas such as property, mobile lavatories services and the ownership and chartering of vessels

The company announced its full-year earnings last Thursday, so let’s see how it fared.

Operating results

King Wan recorded revenue of S$95.4 million for the financial year ended 31 March 2014 (FY2014). That is a 44% improvement over the previous year. The huge jump in sales is mainly due to ”a significant increase in the total revenue generated from M&E [Mechanical & Electrical] contracts”.

However, due to a much lower gross margin (a decrease from 17% a year ago to 14%), the company’s gross profit only managed to grow by 17% year-on-year to S$13.3 million. On a more positive note, the company achieved a 29% increase in its “other operating income” line on its income statement to S$3.9 million; the bulk of that growth had come mainly from higher interest income.

Unfortunately, King Wan also faced a huge increase in its administrative and finance costs. In FY2013, the company had also made a one-off sale of one of its subsidiaries – that naturally couldn’t be repeated this year and thus there was a lack of profit from that area. All the above ultimately resulted in the company’s net profit dropping by 4% to S$6.7 million from a year ago.

In particular, the increase in administrative expenses was due to higher impairment made for its doubtful trade receivables and inventories. This might be worrying for investors as it’s a sign that the credit quality of King Wan’s customers is deteriorating.

The company also saw its balance sheet weaken compared to a year ago; although total cash on hand had decreased from S$16.7 million to S$11.2 million, total debt had increased from S$7.6 million to S$12.7 million. But even so, there’s no real cause for alarm as the company’s net debt (total debt minus total cash) position is still really low in relation to its overall equity base – King Wan’s net debt to equity ratio is only 1.7%.

Going forward

The company expects the construction industry to remain challenging for FY2015 due to increased competition and high labour costs. However, as King Wan still has about S$153 million worth of M&E contracts on hand that stretches out till 2017, the order book should at least help provide support for the company’s overall results for the year.

Late last month on 21 May 2014, King Wan had also announced its investment into the workers’ accommodation business, further broadening the scope of its business activities. The company had taken up a 19% stake in a consortium that would design, develop, and operate a 9,200 bed dormitory. The project is slated to be “one of the largest workers’ dormitory projects in Singapore.” Other members of the consortium include TA Corporation (SGX: PA3), “an established property and construction group”, and SKM Development, “a private held investment holding group.”

Foolish Summary

King Wan declared a S$0.015 per share dividend for the year which is 50% higher than a year ago. King Wan’s currently trading at S$0.325, giving it a price to earnings ratio of 17 times.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.

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